Introduction to Domain Name Reselling

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Mon, 11/26/2007 - 17:36 — kohashi

Intro
So you've heard about the dot com bubble and how people made millions of dollars hardly lifting a finger? Perhaps you want a piece of that pie. I am here to tell you those days are dead, over, long gone. The market, players and money have all changed. The cost of registering a domain name have gone down significantly but the gems are long gone. Even the mediocre names all seem to be taken. So where does that leave someone new to the market and how should they behave today?

The article I am writing is based on my personal experience. No one strategy is going to work for everyone, I hope to help newcomers to the industry avoid some of the most common pitfalls and perhaps save a few dollars. First off, who am I? My name is Kevin Ohashi, I am not one of these people who started way back in the early 90's and picked up fantastic domain names and make huge profit holding them. I actually only got involved in this industry around 2002 when I lost my domain name and had to figure out how to capture it back when it expired. So from a personal quest to reclaim my own domain name I learned about how the industry operates and noticed that there were still opportunities to make money in it.

Registering Domain Names
The first thing people are often tempted to do is buy a domain name once they hear about the opportunities to make money. STOP. Let common sense kick in for a moment, if it really were that simple wouldn't it already have been done? I know there are some clever people ahead of the markets, but everyone and their dog has heard about dotcom's and all the opportunities to make money from them. One thing to bear in mind is that investing in domain names isn't something new anymore and the money isn't going to fall from the sky into your pocket.

Now, assuming that you have not spent your life savings on buying domain names, let's take a look at the actual registration process.

First, you need to find an available domain name. There are many services out there who provide WHOIS lookups, but be careful, each day there are more reports that these services even at the most trusted websites could be logged and data sent to third parties to register your names. I personally use a tool called All-in-One tool from DomainState (http://www.DomainState.com) which provides a real-time availability check combined with WHOIS information. It is often good to spend some time searching all sorts of names. There is bulk whois lookup tool called Checker available at FreeWho (http://www.freewho.com). I recommend searching a couple hundred, maybe thousand names, it helps you get a feel for what is being registered and what is not. Keep notepad/word/piece of paper handy and jot down any available ones you think might be worth buying.

A few tips to keep in mind when finding names:
1. Just because you think it may be worth something doesn't mean anyone else will.
2. Can you even pronounce that? Read the name out loud. (don't forget to spell check).
3. Can you spell it? We're not targeting spelling-bee champions here...
4. When was the last time you went to xyz-932.com? Hyphens and Numbers are normally a bad sign.
5. .biz what's that? Extension matters, a lot.
6. There is a market for those extensions, but it isn't very big and they lack recognition that dot com, org and even net carry with the general public.
7. Is that trademarked? Be careful what you register, infringing on other people's trademarks could get you in trouble.
8. TheWorldsLongestDomainNameIsntBeingTypedInVeryOften.com
9. Don't add meaningless word(s) to the end because the original isn't available – target specific niches with related words.
10. There are exceptions to every rule above.

Once you've found name(s) to register you will need a domain registrar. There are two options here, there are ICANN Accredited registrars and resellers. It doesn't really make much difference whether they are accredited or not – there are bad eggs in both categories. Pick wisely. Do your research, figure out what features you need, what price you can afford and what level of support you're willing to accept. There is always a trade off between price, support and features; though some do better than others in all three categories.

Some tips for picking a domain name registrar:
1. Do they look reputable? Spend a minute and just look at the website, if it can not present itself in a decent manner it probably shouldn't be your first pick.
2. Give them a call. See if they have a phone number listed, does anyone answer?
3. Try emailing support with a question – is their response time satisfactory?
4. Try putting in some garbage and check their registration process, is it intuitive?
5. If you try and buy something does it use SSL (check if the website address says https:// in the address bar) indicating your transaction is at least encrypted protecting your personal information.
6. Check pricing for additional features, costs. Read the fine print, some registrars have very strange terms of service.
7. What do others have to say about them? Try searching the company name at popular forums such as DomainState (http://www.domainstate.com) and WebHostingTalk (http://www.WebHostingTalk.com).
8. If you can't find any information try asking people.
9. Try searching for a coupon code, many registrars have them, they are out there.
10. No registrar is perfect, they all have problems, some big, some small, but remember we're all human, it's more important how we resolve those problems when they occur.

Selling Domain Names
Selling domain names is one of the most difficult things for most people to do. Often too much personal value gets attached and prices asked reflect it. One thing to remember is there are generally two ways to evaluate the worth of a domain name. The first is based on revenue and multiples of it. Domain names with revenue are purchased normally between 1-5 years worth of revenue with adjustments for risk and direction of revenue stream (increasing or decreasing) and related market expectations. The second method of valuation is less defined, price is determined by an arbitrary value perhaps based around potential which the seller thinks he can get and a buyer agrees to pay. This is the category into which most end-user sales fall. What motivates these sales is hard to define, it varies a lot from case to case and the buyer. Perhaps they own the same name in another extension, want to name their new product, and there are many other possibilities. There is considerably less liquidity with the second method of valuation. The reseller or 'domainer' market purchases domain names at a much lower price but this comes with increased liquidity.
The reseller markets are often centered around forums such as DomainState(http://www.DomainState.com), DNForum(http://www.dnforum.com) and WebHostingTalk (http://www.webhostingtalk.com) to name a few. Putting domains for sale on such forums as these can often result in offers within minutes as long as the prices are reasonable; these aren't places where you are trying to locate end-user buyers. They offer cash a lot quicker so if you need to cash out quickly or want to work on small margins, these are great starting points.
The end-user market is a bit less defined, there are many articles written on the topic of finding, approaching and selling to end-users. One of the other ways to get noticed is using large listing sites such as Sedo(http://ww.sedo.com) and AfterNic(http://www.afternic.com). Many of the big sales take place at such markets and they attract some deep pocketed buyers. One suggestion is setting a minimum offer because they are also used by resellers trying to find a bargain and there is a constant flow of minimum offers. The easiest way to advertise your domain name for sale is to write a for sale announcement on your website. Many parking services allow you to list the name for sale which is a great way to let visitors to the site know it is for sale while earning revenue on the visitors going there.
As you've read this article you may have noticed it has been left very open-ended. That is completely intentional, the best way to get serious about this business is learning hands-on. Try your own techniques, test your theories for selling domain names, find what works for you and go with it. There are so many niches in the industry and probably many more that aren't discovered yet, you just need to find your own. Lastly, keep reality in check, don't invest more than you're willing to lose and know when to quit.

Expiring Domain Names
Often we find other people have already registered the majority of good domain names. Another source for acquiring domain names is the expiry process where previous owners fail to renew their domain names and they become available for registration again. The process varies slightly by registrar but it generally goes hold (a hold on the domain for up to 45 days), then redemption grade period (30 days) and then finally pending delete (5-6 days depending on extension) after which the domain officially gets deleted from the registry. This was the standard process for the com/net/org extensions, other extensions generally are similar but each has its own intricacies and should be researched by anyone truly interested in pursuing them.
Recently domain registrars have decided to capitalize on this market and take the domain names of clients after they have expired and auction them off to the highest bidder. While not all registrars do this, a good many do and it can be a good source for acquiring new domain names. The full legal and ethical implications of doing such things aren't yet clear but it has become common practice in the industry.
The expiring (deleted) and pre-expiration (registrars selling clients names before deleting them) markets have combined and often you can search for both types of names from the same website. SnapNames (http://www.snapnames.com) is one of the largest intermediaries in the expiring domain name market and many of the best domains can be found there. Other companies worth noting are Pool (http://www.pool.com) and TDNAM (Part of Godaddy – http://www.tdnam.com). While the market is constantly changing, the easiest way to keep track of it all is through active participation in domain name related forums.

Conclusion
Reselling domain names is not difficult in and of itself. Making a living from it is. One thing many people often forget to take into account is the value of time. Buying a domain name for $6 and selling it for $15 two days later seems like a profit. However, working minimum wage for two hours would have earned you more income. If you're truly interested in the market you must take the time to learn all about how different companies and processes work that are related to domain names. Meeting the right people and forming the right connections are crucial to success. The point I cannot stress enough is that it takes a lot of time, effort and patience to succeed in this business, and sometimes even that is not enough.